Australian dollar to stay strong until taper: ANZ

Bloomberg

Mon, Nov 04, 2013 - Page 15

Australia & New Zealand Banking Group Ltd (ANZ) CEO Michael Smith said he expects the Australian dollar to maintain its strength as long as the US Federal Reserve keeps up monthly asset purchases.

“It’s unlikely we’ll see a huge reduction or a major reduction in the Aussie dollar’s strength until there is a tapering in the US,” Smith said in an interview broadcast yesterday on the Australian Broadcasting Corp’s Inside Business program. “As the US dollar strengthens, we’ll start to see the Aussie come off a bit.”

The US Federal Reserve decided it would press on with US$85 billion in monthly bond purchases, saying last week that it needs to see more evidence the US economy will continue to improve.

The central bank also said the economy is showing signs of “underlying strength.”

While the Australian dollar fell to a three-year low of US$0.8848 on Aug. 5 amid speculation the Fed would begin to taper bond purchases by year end, that sentiment reversed as a government shutdown in the US slowed growth, prompting the Australian dollar to touch an almost five-month high of US$0.9758 on Oct. 23. The Australian dollar closed at US$0.9438 on Friday.

Reserve Bank of Australia Governor Glenn Stevens said last week the Australian dollar “at some point in the future” will be “materially lower.’’

Economists in a Bloomberg survey said that tapering in the US will begin in March, based on the median estimate.

“I don’t think the tapering will happen until well into next year,” Smith said. “It will create some volatility. There will be adjustment.”

ANZ, the country’s third-largest lender by market value, has maintained its credit standards, Smith said. Charges for bad debts in the last year fell 5 percent to A$1.2 billion (US$1.1 billion) from a year ago and newly impaired assets in the year dropped 22 percent, ANZ said on Tuesday last week.

“We haven’t lowered our standards,” Smith said. “In fact, I think over the last few years we’ve maintained credit standards very well.”